Question

If there are five firms in an industry and the market shares of the firms are 35 percent, 25 percent, 20 percent, 16 percent and 4 percent. the four-firm concentration ratio for this industry is __________________ percent and the herfindahl index is ________________.

a. 90; 3,300
b. 96; 2,506
c. 96; 2,522.
d. 86; 9,216
e. this cannot be

Answer 1

The answer is 96% and 2,522 HHI. This is found by calculating the market share of all firms over the market share of total firms (100%). The four firms index covers the four largest firms in the industry (35+25+20+16). The HHI is calculated by dividing each market share over the total market share, squaring each of these, then multiplying by 10,000 to get a readable number. A concentration of 2,522 means that the industry is highly concentrated and that only a few firms hold the majority of the power (usually an oligopoly).